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Prescription Drug Expenditures

Posted Oct 28 2008 9:57pm
Much is made of the ever escalating prescription drug prices. Are prices increasing? Sure, so is the price of milk. But is it relevant?

Last week, I received my annual copy of the “Medical Cost Reference Guide: Facts and Trends Supporting Knowledge-Driven Solutions” published by the folks over at the BlueCross BlueShield Association. Arguably this is one of the most comprehensive and least biased reports out there and stands in stark contrast to the partisan puff-pieces published by Kaiser Family Foundation and others.

One thing struck me, prescription drugs are still 10% of the healthcare dollar.


With all the talk about how prescription drug prices are growing so much faster than everything else, you’d expect that the percent of prescription drug expenditures would be increasing every year. It isn’t.

In fact, the report shows that both payments to physicians and hospital expenditures are increasing faster than prescription drugs (for 2004, the most recent year for which information is available). Prescription drug growth rates have declined every year since 2000.

I went back and looked at old Drug Trend reports from Merck Medco, Express Scripts and others from 1996-1999 (just a decade ago). You guessed it—prescription drugs accounted for just 10% of the healthcare dollar.

To be fair, in certain private insurance plans (which account for 35% of the total market), prescription drugs have risen to just under 14% of the healthcare dollar…all due to increased utilization. In other words, people with better insurance take more drugs because they can. And that is a fundamentally different problem than increasing drug costs.

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